Sprint - Nextel 2008 Annual Report Download

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ÈANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-04721
SPRINT NEXTEL CORPORATION
(Exact name of registrant as specified in its charter)
KANSAS 48-0457967
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
6200 Sprint Parkway, Overland Park, Kansas 66251
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (800) 829-0965
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Series 1 common stock, $2.00 par value New York Stock Exchange
Guarantees of Sprint Capital Corporation 6.875% Notes due 2028 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ÈNo
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes No È
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ÈNo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files). Yes ÍNo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company.
Large accelerated filer ÈAccelerated filer
Non-accelerated filer (Do not check if smaller reporting company) Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act.) Yes No È
Aggregate market value of voting and non-voting common stock equity held by non-affiliates at June 30, 2009 was
$13,800,465,103
COMMON SHARES OUTSTANDING AT FEBRUARY 19, 2010:
VOTING COMMON STOCK
Series 1 ................................................... 2,942,347,082
Series 2 ................................................... 35,000,000
Documents incorporated by reference
Portions of the registrant’s definitive proxy statement filed under Regulation 14A promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, which definitive proxy statement is to be filed within 120
days after the end of registrant’s fiscal year ended December 31, 2009, are incorporated by reference in Part III hereof.

Table of contents

  • Page 1
    ... file number 1-04721 SPRINT NEXTEL CORPORATION (Exact name of registrant as specified in its charter) KANSAS (State or other jurisdiction of incorporation or organization) 48-0457967 (I.R.S. Employer Identification No.) 6200 Sprint Parkway, Overland Park, Kansas (Address of principal executive...

  • Page 2
    ... Market Risk ...Financial Statements and Supplementary Data ...Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Controls and Procedures ...Other Information ...PART III Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security...

  • Page 3
    ... SECURITIES AND EXCHANGE COMMISSION ANNUAL REPORT ON FORM 10-K PART I Item 1. Business OVERVIEW Sprint Nextel Corporation, incorporated in 1938 under the laws of Kansas, is mainly a holding company, with its operations primarily conducted by its subsidiaries. Our Series 1 voting common stock trades...

  • Page 4
    ... and long distance wireless voice services, as well as voicemail, call waiting, three-way calling, caller identification, directory assistance, call forwarding, and speakerphone. We offer Nextel Direct Connect® push-to-talk services on our iDEN network. We also provide voice and data services to...

  • Page 5
    ..., with services billed on a monthly basis according to the applicable pricing plan. We market our prepaid services under the Boost Mobile®, Virgin Mobile® and Assurance WirelessSM brands, as a means to provide value-driven prepaid service plans to particular markets. Our wholesale customers are...

  • Page 6
    ... targeted business subscribers. In addition, we provide voice, data and IP communication services to our Wireless segment and IP and other services to cable Multiple System Operators (MSOs) that resell our local and long distance service and use our back office systems and network assets in support...

  • Page 7
    ... are targeting the high-end data market and are offering deeply discounted rates in exchange for high-volume traffic as they attempt to utilize excess capacity in their networks. In addition, we face increasing competition from other wireless and IP-based service providers. Many carriers are...

  • Page 8
    ... spectrum lease arrangements for a range of wireless radio service licenses, including our licenses, with FCC oversight. Approval from the Federal Trade Commission and the Department of Justice, as well as state or local regulatory authorities, also may be required if we sell or acquire spectrum...

  • Page 9
    ... (E911) services in a two-tiered manner. Specifically, wireless carriers are required to transmit to a requesting public safety answering point (PSAP) both the 911 caller's telephone number and (a) the location of the cell site from which the call is being made, or (b) the location of the customer...

  • Page 10
    ...the rates charged by, wireless carriers, certain state PUCs and local governments regulate customer billing, termination of service arrangements, advertising, certification of operation, use of handsets when driving, service quality, sales practices, management of customer call records and protected...

  • Page 11
    ... ability to provide services to the cable companies in an efficient manner. However, regulatory decisions in several states may speed our market entry in those states. Voice over Internet Protocol We offer a growing number of VoIP-based services to business subscribers and transport VoIPoriginated...

  • Page 12
    ... free services (such as conference calling and chat lines) to end users; these services (and payments to the LECs' partners) are financed through the assessment of high access charges on the end user's long distance or wireless carrier. Because of the peculiarities of the FCC's access rate rules...

  • Page 13
    ...subscribers for these USF charges. The FCC also is considering changing the way it distributes federal USF support to competitive carriers like us. Currently, we receive support in 25 jurisdictions as an Eligible Telecommunications Carrier (ETC). In 2008, the FCC capped the total amount of high cost...

  • Page 14
    ... in the ending employee count above. Access to Public Filings and Board Committee Charters Important information is routinely posted on our website at www.sprint.com. Information contained on the website is not part of this annual report. Public access is provided to our annual reports on Form...

  • Page 15
    ... successful execution of marketing and sales strategies, including the acceptance of our value proposition; service delivery and customer care activities, including new account set up and billing; and our credit and collection policies; actual or perceived quality and coverage of our network; public...

  • Page 16
    ...for commercial wireless services and as new technologies are developed and launched. As competition among wireless communications providers has increased, we have created pricing plans that have resulted in declining average revenue per subscriber, for voice and data services, a trend that we expect...

  • Page 17
    ... revenue per subscriber, subscriber churn, ability to attract new subscribers, and operating costs. For example, AT&T, Verizon and T-Mobile now offer competitive wireless services packaged with local and long distance voice and high-speed Internet services, and flat rate voice and data plans. Our...

  • Page 18
    ... liens and sell, transfer, lease or dispose of assets. The trading price of our common stock has been and may continue to be volatile and may not reflect our actual operations and performance. The stock market, in general, and the market for communications and technology companies in particular...

  • Page 19
    ...companies controlling access to more cell sites, enabling them to control usage and rates, which could negatively affect our revenues and profitability. We provide wholesale services under long term contracts to cable television operators which enable these operators to provide consumer and business...

  • Page 20
    ...-lived assets. In addition, if the fair market value of our investment in Clearwire based on quoted prices continues to trade below its book value, it could result in an impairment charge. Also, our future operating results will be impacted by our share of Clearwire's net loss or net income, which...

  • Page 21
    ...for the development and maintenance of certain software systems necessary for the operation of our business. We also have agreements with third parties to provide customer service and related support to our wireless subscribers and outsourced aspects of our wireline network and back office functions...

  • Page 22
    ...we may not have the services or devices available to meet the needs of our current and future subscribers, which could cause us to lose current and potential subscribers to other carriers. In addition, if our distributors are unable to stay in business, we could lose distribution points, which could...

  • Page 23
    ... investors could result in delayed decisions by Clearwire's board of directors or failure to agree on major issues. Any differences in our views or problems with respect to the operation of Clearwire could have a material adverse effect on the value of our investment in Clearwire or our business...

  • Page 24
    ... is located in Overland Park, Kansas and consists of about 3,853,000 square Wireless ...Wireline ...Corporate and other ...Total ... $39.3 4.5 2.4 $46.2 Properties utilized by our Wireless segment generally consist of base transceiver stations, switching equipment and towers, as well as leased and...

  • Page 25
    ...2008 to May 2009. He served as Executive Vice President of Genuine Parts Company from January 2007 to July 2007. He held several key positions with BellSouth Corporation from 1996 to January 2007, including Chief Planning and Development Officer, Chief Field Operations Officer, President - Marketing...

  • Page 26
    ... in May 2008. He served as President and Chief Operating Officer of Motricity, a mobile data technology company, from January 2008 to May 2008 and as Executive Vice President of Infospace Mobile (currently Motricity) from July 2003 to December 2007. He was an independent consultant working with...

  • Page 27
    ..., Base Management from December 2006 until April 2008. Prior to joining Sprint, he served as Senior Vice President of Marketing at PNC Financial Services. Vice President - Controller. He was appointed Vice President, Controller in November 2009. He served as Vice President and Assistant Controller...

  • Page 28
    ...of Equity Securities. Common Share Data The principal trading market for our Series 1 common stock is the NYSE. Our Series 2 common stock is not publicly traded. The high and low Sprint Series 1 common stock prices, as reported on the NYSE composite are as follows: 2009 Market Price High Low End of...

  • Page 29
    ... of all dividends. 5-Year Total Return Sprint Nextel $200 S&P 500 Dow Jones U.S. Telecom Index $150 Dollars $100 $50 $0 12/31/2004 12/31/2005 12/31/2006 12/31/2007 12/31/2008 12/31/2009 Value of $100 Invested on December 31, 2004 2004 2005 2006 2007 2008 2009 Sprint Nextel ...$100.00...

  • Page 30
    ... of the August 2005 Sprint-Nextel merger and the subsequent Nextel Partners, Inc., Virgin Mobile USA, Inc. and PCS Affiliate acquisitions, as well as our November 2008 contribution of our next generation wireless network to Clearwire. The acquired companies' results of operations subsequent to their...

  • Page 31
    ... quarter 2009 acquisitions of Virgin Mobile USA, Inc. (VMU) allowing us to broaden our product offerings in the prepaid wireless market and iPCS, Inc. (iPCS) to expand our direct subscriber base, grow our direct coverage area and simplify our business operations. Our future growth plans and strategy...

  • Page 32
    ... by the number of postpaid subscribers to our services, as well as the average revenue per subscriber or user (ARPU). Beginning in mid-2006, Sprint began to experience net losses of post-paid subscribers on the iDEN wireless network, which we acquired in 2005 in the Sprint-Nextel merger. Such net...

  • Page 33
    ...taken in marketing, customer service, device offerings, and network quality, should reduce the number of net post-paid and total subscriber losses for 2010 as compared to 2009. RESULTS OF OPERATIONS Year Ended December 31, 2009 2008(1) (in millions) 2007 Wireless segment earnings ...$ 5,198 $ 6,776...

  • Page 34
    ... 2007, asset impairments related to the write-off of network assets, including site development costs, the loss on the sale of Velocita Wireless, and the closing of retail stores due to integration activities. Gains from asset dispositions and exchanges increased by $39 million, or 134%, in 2009...

  • Page 35
    ... initial public offering of stock. As a result of the fourth quarter 2009 acquisition of VMU, a non-cash gain of $151 million ($92 million after tax) was recognized related to the estimated fair value over net carrying value of our previously held non-controlling interest in VMU. Income Tax Benefit...

  • Page 36
    ...the price at which we sell our devices, referred to as equipment net subsidies, as well as the marketing and sales costs incurred to attract those subscribers. Network costs primarily represent switch and cell site costs and interconnection costs, which generally consist of per-minute usage fees and...

  • Page 37
    ... services to their subscribers. More information about the number of subscribers, net additions to subscribers, and average rates of monthly post-paid and prepaid customer churn for each quarter since the first quarter 2007 may be found in the table on page 37. Year Ended December 31, 2009 2008 2007...

  • Page 38
    ... unlimited voice, data, text and Nextel Direct Connect® services; improved service levels from our customer care centers; and our Ready Now program. As discussed above in "Overview," we have endeavored to retain and attract subscribers by taking actions to improve our customer care, sales and...

  • Page 39
    ... involuntary churn, where the customer's service is terminated due to a lack of payment or other reasons. Reflects the transfer of 170,000 subscribers from Wholesale and affiliates to Post-paid due to a business combination in the quarter ended September 30, 2007 as well as the transfer of 4,539,000...

  • Page 40
    ... 1,563 3,131 Year Ended December 31, 2009 2008 (in thousands) 2007 Reported net losses ...Net transfers to CDMA ...Losses after transfers to CDMA ... (2,034) (321) (2,355) (2,439) (1,199) (3,638) (2,792) (1,563) (4,355) The Company expects that both post-paid and total subscriber full-year net...

  • Page 41
    ... of monthly flat-rate fees for facilities leased from local exchange carriers based on the number of cell sites and switches in service in a particular period and the related equipment installed at each site, and the variable component of which generally consists of per-minute use fees charged by...

  • Page 42
    ... consist of costs for billing, customer care and information technology operations, bad debt expense and administrative support activities, including collections, legal, finance, human resources, strategic planning and technology and product development. Sales and marketing expense decreased $273...

  • Page 43
    ... our customer base and their related usage, but some cost elements do not fluctuate in the short term with the changes in our customer usage. Our Wireline segment provides services to our Wireless segment which are generally accounted for based on market rates which we believe approximate fair value...

  • Page 44
    ... from data to IP-based technologies. The decrease in 2008 is mainly due to improved access cost rates and declining volumes. Service gross margin percentage increased from 31% in 2007 to 34% in 2008 and to 35% in 2009, primarily as a result of revenue growth in our cable VoIP business and a decrease...

  • Page 45
    ... million in proceeds from short-term investments and a decrease in capital expenditures of $2.3 billion in 2009 as compared to 2008 mainly due to fewer cell sites built in 2009, fewer IT and network development projects and costs incurred related to the build-up of WiMAX in 2008 that are no longer...

  • Page 46
    ... of capital expenditures and FCC license acquisitions; anticipated payments under the Report and Order, as supplemented; any contributions we may make to our pension plan, which has been negatively impacted by the high degree of volatility in the global financial markets; scheduled debt service...

  • Page 47
    ... negatively impact our access to the public capital markets. As of December 31, 2009, we had working capital of $1.8 billion compared to $2.4 billion as of December 31, 2008. CURRENT BUSINESS OUTLOOK We endeavor to both add new and retain our existing wireless subscribers in order to reverse the...

  • Page 48
    ... rates. Represents capital lease payments including interest and financing obligation related to the sale and subsequent leaseback of multiple tower sites. Includes future lease costs related to cell and switch sites, real estate, network equipment and office space. Includes service, spectrum...

  • Page 49
    ... based on Clearwire's closing stock price was $3.5 billion. Sprint continues to believe that we will fully recover the carrying value of our investment. Valuation and Recoverability of Long-lived Assets Long-lived assets consist primarily of property, plant and equipment and intangible assets...

  • Page 50
    ... value and carrying value of the assets. Impairment analyses, when performed, are based on our current business and technology strategy, views of growth rates for our business, anticipated future economic and regulatory conditions and expected technological availability. During 2009, we tested long...

  • Page 51
    ... start-up business. Assumptions key in estimating fair value under this method include, but are not limited to, capital expenditures, subscriber activations and deactivations, market share achieved, tax rates in effect and discount rate. A 1 percent decline in our assumed revenue growth rate used...

  • Page 52
    ... quarter 2009 and did not have a material effect on our consolidated financial statements. In addition, the FASB issued further guidance related to Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies, to address application issues relevant...

  • Page 53
    ... to provide related devices, infrastructure equipment and software applications, or to develop new technologies and devices or features, for our iDEN network; the costs and business risks associated with providing new services and entering new geographic markets; the financial performance of...

  • Page 54
    ... point change in interest rates would have an annual pre-tax impact of $18 million on our consolidated statements of operations and cash flows for the year ended December 31, 2009. We also perform a sensitivity analysis on the fair market value of our outstanding debt. A 10% decline in market...

  • Page 55
    .... Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of the disclosure controls and procedures were effective as of December 31, 2009 in providing reasonable assurance that information required to be disclosed in reports we file...

  • Page 56
    ... 31, 2009, our internal control over financial reporting was effective. Our independent registered public accounting firm has issued a report on the effectiveness of our internal control over financial reporting. This report appears on page F-2. Item 9B. Other Information Not applicable. 54

  • Page 57
    ... our equity securities is incorporated by reference to the information set forth under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in our proxy statement relating to our 2010 annual meeting of shareholders, which will be filed with the SEC. We have adopted the Sprint Nextel...

  • Page 58
    ... of Directors-Independence of Directors" in our proxy statement relating to our 2010 annual meeting of shareholders, which will be filed with the SEC. Item 14. Principal Accountant Fees and Services The information required by this item is incorporated by reference to the information set forth...

  • Page 59
    ... and Intel Corporation Agreement and Plan of Merger, dated as of July 27, 2009, by and among Sprint Nextel Corporation, Sprint Mozart, Inc. and Virgin Mobile USA, Inc. Amended and Restated Articles of Incorporation Amended and Restated Bylaws The rights of Sprint Nextel's equity security holders are...

  • Page 60
    ... Seven to the Term Sheet for Subscriber Units and Services Agreement, dated December 14, 2004, between Motorola, Inc. and Nextel Communications, Inc. 10.3.1 Credit Agreement, dated as of December 19, 2005, among Sprint Nextel Corporation, Sprint Capital Corporation and Nextel Communications, Inc...

  • Page 61
    ... 2008 Short-Term Incentive Plan Sprint Nextel Short-Term Incentive Plan Sprint Nextel 2006-2007 Integration Overachievement Plan Sprint Nextel 1997 Long-Term Stock Incentive Program, as amended Form of 2004 Award Agreement (awarding stock options and restricted stock units) with Executive Officers...

  • Page 62
    ... options and restricted stock units) under the 1997 Long-Term Stock Incentive Program for 2007 for other executive officers Management Incentive Stock Option Plan, as amended Amended and Restated Employment Agreement, effective December 31, 2008, between Daniel R. Hesse and Sprint Nextel Corporation...

  • Page 63
    ... Award Agreement (awarding stock options) under the 2009 Long-Term Incentive Plan for all other executive officers Sprint Nextel Deferred Compensation Plan, as amended and restated effective May 17, 2006 Executive Deferred Compensation Plan, as amended and restated effective January 1, 2008 Amended...

  • Page 64
    ..., Independent Registered Public Accounting Firm Certification of Chief Executive Officer Pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) Certification of Chief Financial Officer Pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) Certification of Chief Executive Officer Pursuant to...

  • Page 65
    ... or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SPRINT NEXTEL CORPORATION (Registrant) By /s/ DANIEL R. HESSE Daniel R. Hesse Chief Executive Officer and President Date: February...

  • Page 66
    SIGNATURES SPRINT NEXTEL CORPORATION (Registrant) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 26th day of February, 2010. /s/ JAMES H. HANCE, JR. ...

  • Page 67
    ... 2009, 2008 and 2007 ...Consolidated Statements of Shareholders' Equity for the years ended December 31, 2009, 2008 and 2007 ...Notes to the Consolidated Financial Statements ...Clearwire Consolidated Financial Statements Report of Deloitte & Touche LLP, Independent Registered Public Accounting Firm...

  • Page 68
    ... 2009 and 2008, and the related consolidated statements of operations, cash flows and shareholders' equity for each of the years in the three-year period ended December 31, 2009. We also have audited Sprint Nextel Corporation's internal control over financial reporting as of December 31, 2009, based...

  • Page 69
    SPRINT NEXTEL CORPORATION CONSOLIDATED BALANCE SHEETS December 31, 2009 2008 (in millions, except share and per share data) ASSETS Current assets Cash and cash equivalents ...Short-term investments ...Accounts and notes receivable, net ...Device and accessory inventory ...Deferred tax assets ......

  • Page 70
    SPRINT NEXTEL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2009 2008 2007 (in millions, except per share amounts) Net operating revenues ...Operating expenses Cost of services and products (exclusive of depreciation and amortization included below) ...Selling, general ...

  • Page 71
    ...Expenditures relating to FCC licenses ...Acquisitions, net of cash acquired ...Proceeds from equity method investments ...Investment in Clearwire ...Proceeds from sales and maturities of short-term investments ...Purchases of short-term investments ...Cash collateral for securities loan agreements...

  • Page 72
    SPRINT NEXTEL CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in millions) Common Shares (Accumulated Accumulated Deficit)/ Other Comprehensive Retained Comprehensive Shares Amount Income (Loss) Earnings(3) Loss Treasury Shares Paid-in Shares(1) Amount Capital(3) Total Balance, ...

  • Page 73
    SPRINT NEXTEL CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY-(Continued) (in millions) Common Shares (Accumulated Accumulated Deficit)/ Other Comprehensive Retained Comprehensive Shares Amount Income (Loss) Earnings(3) Loss Treasury Shares Paid-in Shares(1) Amount Capital(3) Total ...

  • Page 74
    ..., Plant and Equipment ...Intangible Assets ...Long-Term Debt, Financing and Capital Lease Obligations ...Severance, Exit Costs and Asset Impairments ...Supplemental Financial Information ...Income Taxes ...Commitments and Contingencies ...Compensation Plans ...Shareholders' Equity and Per Share Data...

  • Page 75
    ...Access (WiMAX) technology as a new network in markets that we serve. The services supported by this technology gives subscribers with compatible devices high-speed access to the Internet and a variety of increasingly sophisticated data services (See Note 4). Note 2. Summary of Significant Accounting...

  • Page 76
    ...30 years for buildings and improvements and network equipment, site costs and related software and 3 to 12 years for non-network internal use software, office equipment and other. Leasehold improvements are depreciated over the shorter of the lease term or the estimated useful life of the respective...

  • Page 77
    ...of fees, which exceeds the plans long-term expected rate of return on investments for funding purposes. To meet this objective, our investment strategy is governed by an asset allocation policy, whereby a targeted allocation percentage is assigned to each asset class as follows: 50% to U.S. equities...

  • Page 78
    SPRINT NEXTEL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS assets in active or inactive markets, or other observable inputs; and 15% was valued using unobservable inputs that are supported by little or no market activity. As of December 31, 2009 and 2008, the fair value of our plan ...

  • Page 79
    SPRINT NEXTEL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS expense. We compensate our dealers using specific compensation programs related to the sale of our devices and our subscriber service contracts, or both. When a commission is earned by a dealer solely due to a selling activity ...

  • Page 80
    SPRINT NEXTEL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS on debt and equity securities in the financial statements and (iii) Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not ...

  • Page 81
    ...Sprint's consolidated results of operations prospectively from the respective date of each acquisition. The estimated fair values of the assets acquired and liabilities assumed were preliminarily determined using the income, cost or market approaches. The fair value measurements were primarily based...

  • Page 82
    ... transferred ...Fair value of Sprint's equity interest in VMU before the acquisition ...Total ...Acquisition-related costs (included in selling, general and administrative in the results of operations for the year ended December 31, 2009) ...Recognized amounts of identifiable assets acquired...

  • Page 83
    ...with Clearwire's existing business and cash contributions from other investors, is being used to build and operate a next-generation wireless broadband network that will provide entire communities with high-speed residential and mobile internet access services and residential voice services. As part...

  • Page 84
    ...price. Sprint continues to believe the decline in Clearwire's stock price is temporary and expects to recover fully the carrying value of the investment. Summarized financial information for Clearwire is as follows: December 31, 2009 2008 (in millions) Current assets ...Noncurrent assets ...Current...

  • Page 85
    ... Estimated Fair Value (in millions) Long-term debt, financing and capital lease obligations ...Note 6. Property, Plant and Equipment $21,061 $20,014 $21,610 $14,449 Network equipment, site costs and related software includes switching equipment, cell site towers, site development costs, radio...

  • Page 86
    ... of consideration paid over the estimated fair value of net tangible and identifiable intangible assets acquired in business combinations. During the fourth quarter 2009, we acquired VMU and iPCS (see Note 3) and, based on our preliminary purchase price allocation, recorded $373 million of goodwill...

  • Page 87
    ... that were reacquired in connection with the acquisitions of PCS Affiliates, and Nextel Partners, Inc., which are being amortized over the remaining terms of those affiliation agreements on a straight-line basis, and the Nextel, Direct Connect and Virgin Mobile trade names, which are being amortized...

  • Page 88
    ... FINANCIAL STATEMENTS Note 8. Long-Term Debt, Financing and Capital Lease Obligations Interest Rates Maturities December 31, 2009 December 31, 2008 (in millions) Notes Senior notes Sprint Nextel Corporation ...0.65 - 9.25% Sprint Capital Corporation ...6.88 - 8.75% Convertible senior notes Nextel...

  • Page 89
    SPRINT NEXTEL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS On August 11, 2009, the Company issued $1.3 billion in principal of senior notes due 2017. Interest is payable semi-annually on February 15 and August 15 at a fixed rate of 8.375%. The Company may redeem some or all of these ...

  • Page 90
    SPRINT NEXTEL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS We are currently restricted from paying cash dividends because our ratio of total indebtedness to trailing four quarters earnings before interest, taxes, depreciation and amortization and certain other non-recurring items, as ...

  • Page 91
    ... 2007, we had asset impairments of $163 million, primarily attributable to our Wireless segment, which included the write-off of cell site development costs that we abandoned as the sites would not be used based on management's strategic network plans, the sale of Velocita Wireless, and the closing...

  • Page 92
    SPRINT NEXTEL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 10. Supplemental Financial Information December 31, 2009 2008 (in millions) Accounts and notes receivable, net Trade ...Unbilled trade and other ...Less allowance for doubtful accounts ...Prepaid expenses and other ...

  • Page 93
    SPRINT NEXTEL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 11. Income Taxes Income tax benefit (expense) consists of the following: Year Ended December 31, 2009 2008 (in millions) 2007 Current income tax benefit (expense) Federal ...State ...Total current income tax benefit ......

  • Page 94
    ...in 2009 and 2007, respectively. Cash refunds for income taxes were received, net, totaling $30 million in 2008. In 1998, we acquired $229 million of potential tax benefits related to net operating loss carryforwards in the controlling interest acquisition of our wireless joint venture, which we call...

  • Page 95
    SPRINT NEXTEL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2009, we had federal operating loss carryforwards of $6.4 billion and state operating loss carryforwards of $12 billion. Related to these loss carryforwards are federal tax benefits of $2.2 billion and net ...

  • Page 96
    SPRINT NEXTEL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: 2009 2008 (in millions) Balance at January 1 ...Additions based on current year tax positions ...Additions based on prior year tax...

  • Page 97
    ... in the 800 MHz band and a comprehensive plan to reconfigure the 800 MHz band. The Report and Order provides for the exchange of a portion of our 800 MHz FCC spectrum licenses, and requires us to fund the cost incurred by public safety systems and other incumbent licensees to reconfigure the 800...

  • Page 98
    SPRINT NEXTEL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The following table represents payments directly attributable to our performance under the Report and Order from the inception of the program: Through December 31, 2008 Net Additions (in millions) Through December 31, 2009 FCC...

  • Page 99
    ... Plan (2007 Plan); the 1997 Long-Term Incentive Program (1997 Program); the Nextel Incentive Equity Plan (Nextel Plan) and the Management Incentive Stock Option Plan (MISOP). Sprint also sponsors an Employee Stock Purchase Plan (ESPP). Under the 2007 Plan, we may grant share and non-share based...

  • Page 100
    ...a service period ranging from several months to four years. Accelerated vesting was triggered with respect to certain deferred shares and options granted prior to the SprintNextel merger as a result of the Sprint-Nextel merger. At the time of the VMU acquisition, outstanding VMU restricted stock and...

  • Page 101
    ...million for 2008 and $344 million for 2007. Under our share-based payment plans, we had options and restricted stock units outstanding as of December 31, 2009. Forfeitures were estimated for share-based awards using a 10.2% weighted average annual rate. Options The fair value of each option award is...

  • Page 102
    SPRINT NEXTEL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The following table provides the estimated fair value and assumptions used in determining the fair value of option awards granted during 2009, 2008 and 2007: 2009 2008 2007 Weighted average grant date fair value ...Risk free ...

  • Page 103
    SPRINT NEXTEL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Restricted Stock Units The fair value of each restricted stock unit award is calculated using the share price at the date of grant. Restricted stock units outstanding consist of those units granted under the 2007 Plan (...

  • Page 104
    ...: Shares (in millions) Employees stock purchase plan ...Officer and key employees' and directors' stock options and other equity-based awards ... 85 174 259 Accumulated Other Comprehensive Loss The components of accumulated other comprehensive loss are as follows: As of December 31, 2009 2008...

  • Page 105
    ...Virgin Islands. Wireline primarily includes revenue from domestic and international wireline voice and data communication services, including services to the cable multiple systems operators that resell our local and long distance service and use our back office systems and network assets in support...

  • Page 106
    ... for based on market rates which we believe approximate fair value. Segment financial information is as follows: Corporate, Other and Eliminations Statement of Operations Information Wireless Wireline Consolidated (in millions) 2009 Net operating revenues ...Inter-segment revenues(1) ...Total...

  • Page 107
    ... primarily incurred to integrate systems, processes and networks related to the Sprint merger with Nextel. See Note 9 for additional information on severance, exit costs and asset impairments. Included in the Corporate, Other and Eliminations results for 2008 and 2007 are operating expenses of $354...

  • Page 108
    ... STATEMENTS Net operating revenues by service and products were as follows: Corporate, Other and Eliminations(1) (in millions) Operating Revenues by Service and Products Wireless Wireline Consolidated 2009 Wireless services ...Wireless equipment ...Voice ...Data ...Internet ...Other ...Total...

  • Page 109
    ...weighted average number of shares outstanding during the year. In the fourth quarter 2008, we performed our annual goodwill analysis and recorded a non-cash goodwill impairment charge of $963 million. In addition, we recorded asset impairments, gains on dispositions of assets and lease exit costs of...

  • Page 110
    ... Operations of Sprint Nextel Corporation) (the "Company") as of December 31, 2009 and 2008, and the related consolidated statements of operations, cash flows, and stockholders' equity and comprehensive loss for each of the two years in the period ended December 31, 2009. These financial statements...

  • Page 111
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors of Clearwire Corporation (formerly the WiMAX Operations of Sprint Nextel Corporation): We have audited the statements of operations, cash flows and business equity (included within the statement of stockholders' equity...

  • Page 112
    ...-term debt, net ...Deferred tax liabilities, net ...Other long-term liabilities ...Total liabilities ...Commitments and contingencies (Note 13) Stockholders' equity: Class A common stock, par value $0.0001, 1,500,000,000 shares authorized; 196,766,715 and 190,001,706 shares issued and outstanding...

  • Page 113
    ... Year Ended December 31, 2009 2008 2007 (In thousands, except per share data) Revenues ...$ Operating expenses: Cost of goods and services and network costs (exclusive of items shown separately below) ...Selling, general and administrative expense ...Depreciation and amortization ...Spectrum lease...

  • Page 114
    ...Net cash used in operating activities ...Cash flows from investing activities: Capital expenditures ...Payments for spectrum licenses and other intangible assets ...Purchases of available-for-sale investments ...Disposition of available-for-sale investments ...Net cash acquired in acquisition of Old...

  • Page 115
    ...Years Ended December 31, 2009, 2008 and 2007 Accumulated Business Equity of Other Total Additional Paid In Sprint WiMAX Comprehensive Accumulated Non-controlling Stockholders' Shares Amounts Shares Amounts Capital Business Income Deficit Interests Equity Class A Common Stock Class B Common Stock (In...

  • Page 116
    ... FINANCIAL STATEMENTS 1. Description of Business We started operations on January 1, 2007 as a developmental stage company representing a collection of assets, related liabilities and activities accounted for in various legal entities that were wholly-owned subsidiaries of Sprint Nextel Corporation...

  • Page 117
    ... financial statements include: impairment analysis of spectrum licenses with indefinite lives, the recoverability and determination of useful lives for long-lived assets, which include property, plant and equipment and other intangible assets, tax valuation allowances, and share-based compensation...

  • Page 118
    ... basis is zero. Fair Value Measurements - Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, we use various methods including market, cost and income...

  • Page 119
    ...developing fair value measurements. If listed prices or quotes are not available, fair value is based upon internally developed models that primarily use, as inputs, market-based or independently sourced market parameters, including but not limited to interest rate yield curves, volatilities, equity...

  • Page 120
    ... lease term, including expected renewal periods, as applicable. There were no impairment losses for spectrum licenses with definite useful lives and favorable spectrum leases in the years ended December 31, 2009, 2008 and 2007. Other Intangible Assets - Other intangible assets consist of subscriber...

  • Page 121
    ... Recognition - We primarily earn revenue by providing access to our high-speed wireless network. Also included in revenue are leases of CPE and additional add-on services, including personal and business email and static Internet Protocol. Revenue from customers is billed one month in advance and...

  • Page 122
    ..., and related tax effects. Share-based compensation expense on new awards and for awards modified, repurchased, or cancelled is based on the estimated grant-date fair value, using the BlackScholes option pricing model, and is recognized, net of a forfeiture rate on those shares expected to vest...

  • Page 123
    ... $66.5 million to be contributed under the Investment Agreement will close when certain financial information is provided to Sprint for use in its financial reporting with respect to the fiscal year ending December 31, 2009. We refer to the consummation of this purchase as the Third Investment...

  • Page 124
    ... Communications Voting Interests in exchange for an equal number of shares of Clearwire's Class B common stock, par value $0.0001 per share, which we refer to as Class B Common Stock. Under the Investment Agreement, in exchange for the purchase by Sprint, Comcast, Time Warner Cable and Bright House...

  • Page 125
    ... at an initial share price of $20 per share. The number of shares issued to the Investors was subject to a post-closing adjustment based on the trading prices of the Class A Common Stock on NASDAQ Global Select Market over 15 randomly-selected trading days during the 30-day period ending on the 90th...

  • Page 126
    ...purchase the same number of shares of Class A Common Stock, or a restricted share of Class A Common Stock, as applicable. Purchase consideration was based on the fair value of the Old Clearwire Class A common stock as of the Closing, which had a closing price of $6.62 on November 28, 2008. The total...

  • Page 127
    ...the excess of the estimated fair value of net assets acquired over the purchase price (in thousands): Working capital ...Property, plant and equipment ...Other non-current assets ...Spectrum licenses ...Intangible assets ...Term debt ...Deferred tax liability ...Other non-current liabilities and non...

  • Page 128
    ... insurance company and these securities are perpetual and do not have a final stated maturity. In July 2009, the issuer's credit rating was downgraded to CC and Caa2 by Standard & Poor's and Moody's rating services, respectively and the total fair value and cost of our Auction Market Preferred...

  • Page 129
    ...252) $1,319,945 Year Ended December 31, 2009 2008 2007 Supplemental information (in thousands): Capitalized interest ...Depreciation expense ...6. Spectrum Licenses $140,168 $170,131 $ 4,469 $54,811 $ - $3,936 Owned and leased spectrum licenses as of December 31, 2009 and 2008 consisted of the...

  • Page 130
    ... accounting for the Transactions, favorable spectrum leases of $1.0 billion were recorded at the Closing. The favorable component of the acquired spectrum leases has been capitalized as an asset and is amortized over the lease term. Year Ended December 31, 2009 2008 2007 Supplemental Information...

  • Page 131
    ...,713 Year Ended December 31, 2009 2008 2007 Supplemental Information (in thousands): Amortization expense ...Consideration paid ... $32,443 $ 16 $2,888 $ 992 $ 43 $1,316 We evaluate all of our patent renewals on a case by case basis, based on renewal costs. 8. Accounts Payable and Other Current...

  • Page 132
    ... in the financial statements, as if we were filing standalone separate returns using an estimated combined federal and state marginal tax rate of 39% up to and including the date of the Transactions. We recorded deferred tax assets related to the pre-closing net operating loss and tax credit...

  • Page 133
    ... recorded a deferred tax liability for the difference between the financial statement carrying value and the tax basis we hold in our interest in Clearwire Communications as of the date of the Transactions. As of December 31, 2009, we had United States federal tax net operating loss carryforwards of...

  • Page 134
    CLEARWIRE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The income tax rate computed using the federal statutory rates is reconciled to the reported effective income tax rate as follows: Year Ended December 31, 2009 2008 2007 Federal statutory income tax rate...

  • Page 135
    ...; selling or otherwise disposing of assets; merger, consolidation or sales of substantially all of our assets; entering transactions with affiliates; creating liens; issuing certain preferred stock or similar equity securities and making investments and acquiring assets. Future payments of...

  • Page 136
    ... to the fair value measurement. Financial Instrument Hierarchy Pricing Assumptions Cash equivalents: Money market mutual funds Short-term investment: U.S. Government and Agency Issues Long-term investment: U.S. Government and Agency Issues Long-term investment: Other debt securities Derivative...

  • Page 137
    ...and money market mutual funds for which there are quoted prices in active markets. For other debt securities which are classified in Level 3, we use discounted cash flow models to estimate the fair value using various methods including the market and income approaches. In developing these models, we...

  • Page 138
    ... price from several market makers. A Senior Term Loan Facility with a carrying value and an approximate fair value of $1.36 billion was outstanding at December 31, 2008. The Senior Term Loan Facility was not publicly traded. To estimate fair value of the Senior Term Loan Facility, we used an income...

  • Page 139
    ... non-cancelable operating leases consist mainly of leased spectrum license fees, office space, equipment, and leased sites, including towers and rooftop locations. Certain of the leases provide for minimum lease payments, additional charges and escalation clauses. Certain of the tower leases specify...

  • Page 140
    ... FINANCIAL STATEMENTS - (Continued) As of December 31, 2009, we have signed agreements to acquire approximately $30.0 million in new spectrum, subject to closing conditions. These transactions are expected to be completed within the next twelve months. Network equipment purchase obligations...

  • Page 141
    .... Based upon information currently available to us, none of these other claims are expected to have a material adverse effect on our business, financial condition or results of operations. Indemnification agreements - We are currently a party to indemnification agreements with certain officers and...

  • Page 142
    ... stock options issued and outstanding at the Closing were exchanged on a one-for-one basis for stock options with equivalent terms. Following the Closing, we granted options to certain officers and employees under the 2008 Plan. All options vest over a four-year period. The fair value of option...

  • Page 143
    ...total fair value of options vested during the years ended December 31, 2009 and 2008 was $5.8 million and $815,000, respectively. The total unrecognized share-based compensation costs related to non-vested stock options outstanding at December 31, 2009 was approximately $11.5 million and is expected...

  • Page 144
    ... based on the fair value of the equity instruments at each reporting period until the instruments are vested. Total unrecognized share-based compensation costs related to unvested stock options and RSUs outstanding as of December 31, 2009 was $70,250 and $186,100, respectively, and is expected...

  • Page 145
    ... CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Share-based compensation expense recognized for all plans for the years ended December 31, 2009, 2008 and 2007 is as follows (in thousands): Year Ended December 31, 2009 2008 2007 Options ...RSUs ...Sprint Equity...

  • Page 146
    ... Common Stock since the Closing. We currently expect to retain future earnings, if any, for use in the operations and expansion of our business. We do not anticipate paying any cash dividends in the foreseeable future. In addition, covenants in the indenture governing our Senior Secured Notes impose...

  • Page 147
    ... Closing were exchanged on a one-for-one basis for warrants to purchase our Class A Common Stock with equivalent terms. The fair value of the warrants exchanged of $18.5 million is included in the calculation of purchase consideration using the Black-Scholes option pricing model using a share price...

  • Page 148
    ...a combined basis, can be exchanged for Class A Common Stock. The Second Investment Closing was December 21, 2009. We expect the Third Investment Closing to occur during the first quarter of 2010. The contingent shares for the year ended December 31, 2008, relate to purchase price share adjustment of...

  • Page 149
    ...In 2007 we only had one reportable business segment: the United States, as we had no international operations prior to the Closing. We report business segment information as follows (in thousands): Year Ended December 31, 2009 United States International Total Revenues ...Cost of goods and services...

  • Page 150
    ... CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Year Ended December 31, 2008 United States International Total Revenues ...Cost of goods and services and network costs (exclusive of items shown separately below) ...Operating expenses ...Transaction related...

  • Page 151
    ... financial statements (in thousands): December 31, 2009 2008 Accounts payable and accrued expenses ...Debt ...2009 $ 22,521 $246,494 $ 33,872 $178,748 Year Ended December 31, 2008(1) 2007 Revenue ...Cost of goods and services and network costs (inclusive of capitalized costs) (COGS) ...Selling...

  • Page 152
    ... may order various services from the Sprint Entities, including IP network transport services, data center co-location, toll-free services and access to the following business platforms: voicemail, instant messaging services, location-based systems and media server services. The Sprint Entities will...

  • Page 153
    ..., data warehouse services, credit/address check, IT help desk services, repair services applications, customer trouble management, coverage map applications, network operations support applications, and other services. The specific services requested by us will be identified in Statements of Work to...

  • Page 154
    ... financial information for the years ended December 31, 2009 and 2008 is as follows (in thousands, except per share data): First Second Third Fourth Total 2009 quarter: Total revenues ...$ 62,137 Operating loss ...$(232,949) Net loss ...$(260,492) Net loss attributable to Clearwire Corporation...

  • Page 155
    ... under the equity method of accounting. The financial statements should be read in conjunction with the consolidated financial statements of Clearwire and subsidiaries and notes thereto. As described in Note 1 - Description of Business, Clearwire was formed November 28, 2008 and therefore...

  • Page 156
    ... FINANCIAL STATEMENTS - (Continued) CLEARWIRE CORPORATION CONDENSED BALANCE SHEETS December 31, December 31, 2009 2008 (In thousands) ASSETS Other assets ...Investments in equity method investees ...Total assets ...LIABILITIES AND STOCKHOLDERS' EQUITY Other liabilities ...Stockholders' equity...

  • Page 157
    ...) CLEARWIRE CORPORATION CONDENSED STATEMENTS OF OPERATIONS Period From November 29, Year Ended 2008 December 31, to December 31, 2009 2008 (In thousands) Revenues ...Operating expenses ...Operating loss ...Other income (expense): Other income ...Loss from equity investees ...Total other expense...

  • Page 158
    ... STATEMENTS OF CASH FLOWS Period From November 29, Year Ended 2008 December 31, to December 31, 2009 2008 (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ...Adjustments to reconcile net loss to net cash used in operating activities: Loss from equity investees ...Changes in assets...